3:15 pm Monday 27 September 2010
DGTL seems to have hit resistance today. I thought that it would have broken resistance. I guess I was wrong. There is danger that the price could fall back to the 1.50 level again, particularly if some bad news spurs heavy profit taking. What encourages me is the value turnover on the stock today despite the declining mode the stock was at after the opening at 1.74 attracted a lot of sellers. We can surmise that the sellers were all profit takers who managed to buy DGTL around the 1.40 to 1.50 area. What will likely proceed from here is a tug-of-war between the profit takers and those who like the DGTL story going forward. Needless to say, I like the DGTL story going forward because it is not a stock that is being abandoned. It is simply a stock that is attracting quite a bit of trading, and to me, that is good. Having said that, I recommend for people to continue trading the stock and follow the sentiment flow. While I like the fundamentals of the stock, I think the technical and momentum conditions dominate trading of this stock.
AP is also a stock to watch because it has been consolidating over the last two weeks. some analysts are saying that there is very little room for revenue growth in the second half of the year and also next year. This was because WESM was ver favorable to AP this year. I, however, share a differing opinion because of capacity considerations all over the country. We are still in danger of running into a shortage by 2012 if new capacities do no come into stream by the end of next year. What this tells me is that the underlying demand for electricity will remain firm and the WESM will boom again next year to the benefit of AP. It is definitely consolidating and my bet is that it will trade below 20. That is where I would like to own a lot of AP.
DMC appears to me as the next strong stock to approach consolidation. I noticed resistance above 29. DMC is a stock that has exceeded my expectations. I believe that after a correction, DMC will be even stronger than ever.
I was going to write something inspired by this heading, but I could not find the time last Friday due to a series meetings both in and out my office. I also had to catch up with a professional men’s retreat somewhere in Laguna. I am finally going to sleep in my own bed after being away for almost a week.
There is good reason to be cautious because the market has gone way past most expectation. When you come down to why this happened, it is really because many who did not think that stock prices would go this high had come to chase the market. The question in many people’s minds is whether this trend is over.
If you go back to how stock prices and market rends behave in this market, what had actually ended bull markets were external and fundamental factors. Let us take the decline in 1997 to 1998, that happened because the Asian financial crisis made local stock prices too expensive and money went away. The decline from 1999 to 2003 was initially triggered by capital flight from the Estrada administration. Investors just did not believe that our economy could go anywhere with Estrada at the helm. Unfortunately, the dot-com bust of 2001 and the 9-11 tragedy brought about a recession in the U.S. In 2007, what brought our market down was the start of the U.S. recession which officially had set in on the fourth quarter of 2007. Of course, 2008 saw the big global crash.
The question I ask myself now is what is going to make this market crash. Otherwise, this bull will keep on raging. Surely, there is nothing in the horizon that could reverse this trend. The thing is everybody will be welcoming a correction which means if this market tanks, buyers will be stepping in at some point not far behind.
There have been questions on stocks such as RFM and SLI. These stocks have been historically illiquid, but when the tide rises, the small boats rise with the big. For me SLI is a no brainer already, but RFM may be worth looking at because of improving fundamentals. I do not recommend it strongly, but I wouldn’t dissuade anyone who has firm conviction in the stock. For MPI, I would trade the flow of the stock since it has not yet reached full potential.
Mining stocks may have some room to go because of this spectacular surge in LC and LCB. I should have stuck it out with these stocks since I held it for quite a while believing that it has the largest mineral resource in the country. Unfortunately, I got impatient and sold too soon. Lesson learned? When you are convinced about your information, try to stick it out. That is why I think I’ll stick it out with ORE. I went to so much extent finding out if they are producing enough ore to ship, and my sources tell me that they will definitely be shipping.
I appreciate the debate about DGTL. The differences in opinion is what is likely to propel this stock forward. I remember when TMT (technology, media, telecom) was in fashion in NASDAQ in the 1990’s PE’s were in the 100’s and debt to equity ratios were stratospheric. The condition of DGTL is no different today except rather than being a start-up story, it is a recovery story with a solid franchise and customer base. A bet on DGTL today to my mind is better than a bet on GLO because their franchises are going the opposite direction. They are cutting up the same pie, but this time around the bigger slice is with DGTL, momentum wise.
So I am bullish and I am holding on to some TEL, DGTL, DMC, SLI, PX, ORE and ALI. I have a good cash balance though just in case a heavy consolidation comes. Bulls are not characteristically careful, but I am not the four-legged kind anyway.
10:00 pm Wednesday 22 September 2010
I must apologize for not sharing my opinions in the past few days. It is because I am on the road again. I had to speak before the retirement council of an educators group that is having their annual convention in Cebu. Tomorrow, I have to give a presentation in a plenary session of the conference. Unlike yesterday when I spoke to 300 people, I will be addressing 2,500 delegates so I have to prepare and psyche myself for such a crowd.
We can say that I am half blind in the market since I can only log into the market for a few minutes when I find a wi-fi connection. Also, having to network with hundreds of people takes a lot of time off my hands.
I took a look at price actions, and instinctively I am looking for a correction. I think if the market goes down or even moves softly sideways fora couple of weeks, we could have a solid base for further advances. It would also be good for cash management discipline to be sure to have some when cheap stocks appear.
For example, I sold some AP at 21.60 simply because among the stocks I owned it was one that had surged so much. I halved my DMC position at 26.70 because I wanted to position some DGTL and SLI. I also wanted to have some cash when Cebu Pacific goes IPO. I also sold all my PNB at 50 because I wanted to establish a mining position. I put some PX and ORE so I can have exposure on the sector. Unfortunately, I was not able to take advantage of the big move in LC. I don’t mind because I do not flatter myself that I can spot every stock that moves.
Right now, I am sipping some Merlot and listening to soft music in the lobby lounge of the Cebu Marco Polo. Fortunately, they have wi-fi here so I can enjoy myself while updating this blog. I think there should always be time for some relaxation in order to keep our minds open. When we are too hyped up with stock prices, we fail to enjoy life already. In my mind, it is great to trade stocks. It is also wonderful not to worry about squeezing out every drop of profit from it. The point is to enjoy making the money and having a life as well.
11:30pm Sunday 19 September 2010
Oftentimes, we underestimate the impact of economic statistics until we see their concrete manifestation. Earlier this week, I exchanged emails with my friend, Fred, whom I had not heard from for 20 years since he had moved to the U.S. We were both working in Hong Kong in the ’80s, and Fred asked his company to move him to the U.S, which they did. Anyway, after a few years in the U.S., living in the Los Angeles area, Fred made enough money to start a business. He moved to Las Vegas which was booming and operated a mortgage brokering business which had made him quite well off. Unfortunately, the sub-prime fiasco came and brought about the worst financial crisis in history and his mortgage business went belly up and Fred had to file for bankruptcy. He was in the business that was in the middle of the financial storm – home mortgages.
I’m telling you this story because it give some meat to the fears in the U.S. that the economy may not be poised to recover and may in fact recede again because housing is not recovering. Surprisingly, Fred does not sound too dejected because he is able to work part-time as a dealer in a Vegas casino and manages to make rent payments and food expenses. He says, he’s waiting for word on an application for a job in one of the major U.S. banks. I think Fred has enough fight in him to make it.
The U.S. economic condition looks very real as seen from a guy who was one of the unfortunate victims of the recession. The glimmer of hope, nevertheless, is in guys like Fred, though already in his 50’s, have not given up on making things work. He tells me that he’d been in tighter spots before and had always managed to pull out of it.
My view, therefore, is that the U.S. will pull out of this quagmire of stagnation because they’ve got Americans like Fred, who incidentally is Filipino by birth. I am of the view that most Americans do not give up because it is part of their culture to root for the underdog.
The reason why Philippine stocks have been very strong is because foreign money continues to be allocated here. The PSEi has actually surpassed Indonesia and Thailand as the best performing market in the region. Perhaps, what is going on in the minds of investors is whether stocks are becoming over-valued. I would not be surprised if we did see a correction anytime soon, but I do not think it will be a deep one at all.
Should people be in a hurry to sell then? Normally, people should be in a hurry to sell in a bear market not in a bull market. If you observed, up to this time, it had been easier to sell any stock position because they there are a lot of buyers out there. When it comes to buying, the dips come few and far between and you end up chasing the price. My advice is to merely top slice or reduce allocations. To completely be out of positions would be a waste of the good entry levels that you owned those stocks, unless, of course, you’ve already doubled your money.
I mentioned earlier the stocks that I saw to be consolidating and those would be the stocks which people should be top slicing. For those who follow property stocks, I think that the sector will do pretty well so keep an eye on VLL which I think is the cheapest in the sector, and RLC which is a sure money spinner. Of course, MEG, FLI, ALI and the third liners such as LND and ELI could go, but I would not place all my bets on them.
On the power stocks and the holding companies, LPZ may still have room to go, but my sentiment goes for MPI and DMC after they gone through some consolidation. EDC, FGEN and FPH may be in for a play, but I think it would be better to be patient and buy tem on dips. The only ones that I think should be bought soon would be DGTL and TEL and the mining stocks – PX, AT and ORE. While LC and MA are pretty good bets, I just do not feel lucky owning them, so I’d rather pass them up.
Anyway, just like my friend Fred, I believe that hope springs eternal, and I also do my homework on the stocks I pick. Things are actually looking better from where I sit than where Fred is at this moment, but if Fred is not giving up on the U.S. economy, the Philippine economy is in much better shape so why should we fear any market correction. As for me, I’m looking forward to it because I am in a position to take good advantage.
3:50pm Thursday 16 September 2010 Philippine stock Exchange Index 4005.46
Coincidentally, an altitude of 4000 feet is roughly equivalent to being a mile high. Again, we have a market that does not want to come down. In yesterday’s trades, there was a bit of profit taking in mid-session trade even as stock prices traded very strongly in early session. Today, we see the same pattern of consolidation going on. The way I see it, many of those who are underweighted in stocks are rebalancing their portfolios where gains are being banked into cash in anticipation of any further correction. I refer to both local and foreign portfolios.
Nevertheless, you see a very cheap stock leading the day’s advance, which is TEL. After lagging the market for a few months, TEL’s true value has become very compelling. In this Bull Run, investors look to be willing to buy other stocks at PE’s around 15X on the average. TEL is trading at a comfortable multiple of 11.5X so it has become a no-brainer for the savvy investor. Technically, TEL has just broken out of its 4-month resistance of 2500 and is poised to challenge its 6-month resistance level of 2550. If it breaks 2550, we will likely see the stock at 2800 which is only 12.8X 2010 earnings.
What I find encouraging in the market is that there continue to be a lot of skeptics. For example, when the PSEi broke its previous high, all of a sudden people started to talk about taking profits and become defensive in their portfolios. The only logic that is offered is that it has not been this high before and that this might be just another bubble. What I like about skeptics is the support that they keep bottled up within their portfolios because when the market dips, they become the heavier buyers.
Furthermore, I cannot see a bubble in this run up in stock prices because returns going forward from the operating results of listed stocks are not at all exorbitant. The estimates of earnings and cash-flows as well as net asset values are not close to the preposterous levels seen in 1997 and 1998 when a real bubble in the real estate market burst.
Apart from TEL, I think DGTL is on the same price run-up path. I believe that DGTL’s run will be earnings driven because they still have a huge wire-line network where broadband can expand in areas which are covered by neither Globe nor PLDT.
I think these stocks are consolidating but would be poised for further appreciation: AEV, AC, ALI, AP, BPI, DMC, EDC, FLI, JGS, MPI, RLC, SMPH and URC. After some price adjustments, I believe we are in for another surge. In the meantime, I continue to think that rotation into mining and some third liner stocks might dominate trading. Keep an eye on AT, PX and ORE because these stock will likely suck in buyers. Be careful, however, of being a sucker for garbage or “basura” stocks because they might get your cash stuck at a time the better stocks start to move.
11:30 am Wednesday Sept. 14, 2010 Philippine stock exchange Index 3961.15
From time to time, even if we have a strong market, we cannot avoid some profit taking. In some cases, we see broad-based profit taking across all sectors; in other occasions, corrections are selective and investors rotate to other sectors.
The move I am observing is profit taking setting into the power and financial sectors while strength is looming in Telcos ad Mining.
I took profits on PNB, DMC and AP. These are positions that i have held for a long time. I sold all my AP and PNB while I sold only half of my DMC. The price action of AP shows some reluctance from buyers to push it forward and with good reason. The stock has gone up seven times in 18 months and profit taking has never been more compelling.
As to PNB, I think the story of the merger has already run its course. PNB may move up in the long run, but short-term, I think all the juice has been squeezed.
On DMC, I am selling only half because while its power story may be taking a rest, its mining (SCC) and housing businesses will still be on a roll. Property businesses will likely continue to perform given the very compelling margins particularly in high rise dwellings in urban areas and those within easy access to business center. That is why I also like VLL and SLI – laggards stocks that have very good land banks and have recently gone into vertical development
With the outlook so rosy in Philippine stocks, it may be pre-mature to even take some profits. Personally, I think an assault at 4000 is pretty close at hand. Today’s 10-year FXTN auction fetched quite a low coupon and average yield – 6 1/8 and 6.149 respectively. This is one of the lowest coupons we have ever seen and what it tells me is that low interest rates will be around for some time to come.
Nevertheless, if you are inclined to take profits, by all means do so. I think some stocks are close to their run for the time being. I like DMC and AP very much, but I would not mind stop slicing my positions since in DMC, I have more than a two bagger already. I feel the same way for PNB which has paid for some of my mistakes and tucked in a hefty reward even. I have always thought that no one loses money by taking a profit.
I had talked about TEL a couple of weeks ago particularly when it hovered below or around 2400. I think that this is a cheap stock and will likely start forging ahead soon in spite of the sentiment that people have against telco stocks. I cannot walk away from TEL’s low P/E, high dividend yield and high ROE.
Another telco whose story I am quite keen on is DGTL. I mentioned before that this stock is on the way to recovery. I have the conviction that this company can triple its profit next year simply because it now has critical mass in its wireless business plus strong growth in its broadband business.
For property, I believe that VLL and SLI will start to catch up. These stocks had been shunned in the past, yet the fact remains that they have very good developments in their pipe-line with an impressive land bank to boot. There had been some comments on these stocks from some readers. I do not have their valuations readily at hand, but I have seen them from a colleague’s notes and they are quite convincing.
Notice as well that mining shares are now on the move. The CRB (Commodities) index has been moving up and even if gold prices are slowing down, copper and silver remain strong. The rise in the Manufacturing index in China is also giving encouragement to base metal prices. This is why the mining stocks have started to perk up again. PX has slowly been edging up, but AT has been a star. I think PX can head up to 14.50 while AT could challenge 15. If metal prices remain firm, I think it could even exceed these levels.
I mentioned ORE in the past and the information I am getting on the company is that it has had a good shipment record in the past and is now preparing to ship in November. It should be a good play for mining followers.
All told, I would like to suggest some portfolio rebalancing. I would encourage some profit taking, some rotation and even taking in more cash. However, I will discourage zero positions at this point. When the market is as strong as this, you should not be naked. Equity positions will surely pay off.
First of all, i would like to tell all of you that for reasons unknown to me, I could not post on this site. I could only access the comment box where most of you post your comments. Anyway, I am happy that I can share things again today.
First of all, there are very few players in the local market who are not as pleased as I am that the PSEi has broken its all time high. We are now trading in uncharted territory. That is not to say that I am no longer bullish in the local market. Far from it.
I continue to stress that investors should prepare to increase equity exposure even more, now that we are breaking new ground. It has become to be a new ball game for the PSE which I feel has graduated into a bigger league. Let us look at it from the top going down.
What are the fundamentals, macroeconomics-wise?
1. We have a much bigger economy now than what we had in 2007 when we posted the previous high. Remember that the Philippine economy did not go into recession. It only slowed down and that is the reason why locally listed companies did not have to face any capital erosion. In fact, cash balances of Philippine companies remain high.
2. We have more money on hand today than in 2007. If you remember the SDA level with the BSP in 2007, it was roughly around Php 500 billion. Today, it is pushing Php 1 trillion. People have been extremely cautious with their cash and only a few have managed to put it to real work – as in the stock market.
3. Companies have better bottom lines today than 2007. We have been seeing corporate earnings rise by 10 to 15 percent. Power and utilities companies have been experiencing even stronger growth. So have some consumer shares.
4. We have a better political and business climate than we had in 2007. Remember that they were still looking to impeach GMA that year except many proponents already gave up. They, however, went for investigations such as the NBN deal and the fertilizer scam among others. Today, in spite of the set-back brought about by the August 23 hostage crisis, there is still a lot of political capital in the hands of Noynoy Aquino. There is a lot of business enthusiasm from both domestic and foreign sources.
5. More investors from outside the country are looking to allocate investments to Philippine stocks today than there were in 2007. If you look at the TIP (Thailand, Indonesia, Philippines) theme, the almost identical performance of the three markets gives us an early indication of how global capital is moving.
6. More locals are getting involved today than in 2007. Due to heavy losses taken by wealthy investors during the sub-prime crisis, Filipinos have realized that investing abroad is not a sure-fire strategy anymore because one has very little control of investment decisions. In contrast, if you play with your money domestically, it is easy to cut losses before they run your portfolio to the ground like the foreign fund managers did to them in 2008.
7. The outlook going forward is better today than it was in 2007. We have had 2 quarters of growth and while the world is wary of a second dip in the global economy, this in 2007, the crash was imminent. This was because there were asset bubbles everywhere – US, Europe, China, hard commodities, soft commodities. even crude oil was headed for ear-piercing levels in late 2007 going into 2008 when it peaked at $150 a barrel. Today, asset prices are low but are already at rock bottom in as far as property prices are concerned in the developed world. Even property prices in China have eased a bit. Oil is having a hard time breaking above $80.
What I would like to say is that things are different today tan what it was in 2007. At that time TEL was above 3000 and GLO was above 1100. Today, TEL is only 2400 in spite of a core bottom line 15% higher than it was in 2007. Even AC was above 500 then and ALI over 20. What has happened is that the market has diversified in stock allocation because there is more to choose from today that 3 years ago.
Now tell me, is that not good for stocks as a whole.
By Shinny Chen
Sept. 7 (Bloomberg) — Philippine and Malaysian stock
markets may soon end 16 years of stagnation and enter a “golden
era,” according to CLSA Asia-Pacific Markets technical analysts.
The Philippine Stock Exchange Index is testing its record
high reached on Oct. 8, 2007, after fluctuating between support
at 975 to 1,075 and resistance at 3,447 to 3,896 since 1993,
CLSA analysts led by Laurence Balanco said. The FTSE Bursa
Malaysia KLCI Index is also poised for a breakout after it
“drifted net-sideways” below the 1,332 to 1,524 range since
1994, the analysts wrote in a report.
The “secular bear markets” in the two Southeast Asian
countries may be similar to ones in South Korea from 1989 to
2005, Indonesia from 1990 to 2004, India from 1992 to 2004,
Singapore from 1994 to 2006, and the U.S. from 1966 to 1982,
according to CLSA. Since then, benchmark indexes in the five
countries have rallied at least 51 percent and posted gains of
as much as 282 percent, the analysts said.
“If the PSE index and the KLCI are to adhere to these
common secular bear market patterns, then both markets are on
the cusp of entering a new long-term bull market phase,” the
A “conclusive” breakout above 3,896 could take the
Philippine gauge to 6,752 “in the years to come,” according to
the analysts. Still, they said the market may yet pause as it
approaches the resistance zone and as the benchmark index
completes a five-wave sequence from the October 2008 low.
The Philippine index lost 0.6 percent to 3,723.45 at 11:14
a.m. local time.
“A partial retracement from the 3,447 to 3,896 resistance
zone will mark the end of a 16-year secular bear market,” they
wrote. “We would look at accumulating stocks during this
Resistance refers to the upper boundary of a trading range,
where sell orders may be clustered, while support is where there
may be buy orders. Elliott Wave Theory, created by U.S. market
analyst Ralph Elliott in 1938, concludes that market swings, or
waves, follow a predictable, five-stage structure of three steps
forward and two steps back.
In Malaysia, a breakout may suggest a long-term minimum
target of 2,610 for the KLCI index, according to the analysts,
who didn’t specify a time frame. The gauge was little changed at
Still, an “extreme” reading for the gauge’s 14-day
relative strength index may be a warning sign of a pullback in
the near term, the analysts said. The KLCI’s RSI, tracking how
rapidly prices advanced or declined, was at 77.6 today, higher
than the 70-level seen by some analysts as a signal that prices
are poised to fall.
In my last article, I wrote that investors should be looking to raise cash because he U.S. economy was looking to fall into its second dip. There was also this negative sentiment around the country on account of the hostage fiasco that transpired on the 24th of August. For an investor, raising cash does not really mean that he is turning negative on the market. I, for one, have been a strong advocate of greater equity allocation in investors’ portfolio simply because the alternatives were not at all enticing. When asked by an investor early this week of how I was moving my portfolio, I said that I was selling some stocks and buying others because I did not want to be 100% allocated in equities. I want to have close to 20% cash on hand; so if I took on a new position, I would re-balance my portfolio by selling some slow or under performers as well as top-slicing for profits in stocks that have done very well.
It has been very difficult to make short-term judgments in my portfolio because many local investors’ sentiments become jaded by what is going on in Wall Street. For most of August, the Dow was declining, yet the PSEi was steadily rising. Foreign buying into our market was intermittent slipping from net buyers to net sellers from week to week. Nevertheless, there were always traces of foreign brokers ready to pounce on any weakness in prices. That was in fact what happened when the hostage fiasco at the Quirino Grand took place. The market drifted lower only to be met by aggressive buying among foreign and local institutions. If there is anything that we can glean from price actions of the last few days, it is that pent up demand for Philippine stocks is starting to surface quite strongly. This demand is most evident in the growth of value turnover over the past 5 weeks. In the first week of August, value turn-over was averaging Php 3.2 billion a day. This steadily rose to Php 3.7 billion a day average in the second week, then to Php 4.2 billion. In the week immediately past, it was already averaging Php 5 billion a day.
Undoubtedly, the amount of money flowing into the market is growing. Ironically, this comes at a time when global investors feel quite uneasy about the developed markets. While there has been a recovery in Wall Street this past week, there appears to be no definite conviction that the economy will do better. There appears to be no conviction that stocks in the U.S. will continue to rally, after all the year-to-date performance of both the Dow and the S&P 500 have been flat to negative.
Where does this leave local stock prices? Well, I think they will continue to move higher. Of course, people cannot ignore the individual stock selection. People have been asking about the banks due to the recent publicity on Globe Asiatique, a property company that has applied for listing in the PSE. The scuttlebutt is that there are some bad loans coming out of the misfortune of this property company. To be safe, I would avoid RCB and PNB for the time being. The news I am getting is that PNB has a manageable exposure while RCB’s potential problem is around 4 times that of PNB’s. I think people should watch these stocks closely to see what happens. Personally, I believe PNB will weather this one quite easily and with the forthcoming merger with Allied, I see very little erosion in the ultimate merged value of PNB.
As to stocks that I think will continue to perform, at the top of my list would still be AP and DMC. I missed the strength in AC and BPI. These stocks, together with MBT are very much preferred by foreign funds. I think that all the blue chip stocks will be doing well over the remaining months of 2010. I think it is worth mentioning that TEL will always be part of any foreign portfolio seeking an exposure in the Philippines. Actually, my strategy with TEL is to have an equal weight of TEL and DGTL in my portfolio. TEL has the steady and huge core earnings which is expected to go to Php 45 billion in 2011. DGTL, I expect core earnings to at least double in 2011.
For property stocks, I quite agree with those who have been punting on FLI. the stock was a favorite until Typhoon Ondoy struck. The stock, I feel, has undergone a re-evaluation and people are now more confident that things are back on track. I am also taking a look at the fundamentals of SLI because of the recent price movements in the stock as well as volume spikes. SLI is a good real estate developer that have had a number of successes. There might be money making opportunities here.
There have also been some interest in mining share led by a recent rise in PX and a stronger move on AT. I think that that there may be trading opportunities in both stocks since hard commodities have started to pick up again in the world market and both these mines are producing. incidentally, I hear that ORE is already producing and should be making shipments soon.
Finally, I think the exchange of ideas going on in the comment section of this blog is very constructive. I encourage a lively exchange of ideas among readers. My only request is that we keep the standard of the comments on a professional level, meaning, let us share insights rather than just hype. Let us also use language worthy of respect for our readers.